The crypto market is having a nightmare in 2022. Bitcoin, the original cryptocurrency, continues to be a leading indicator for the industry. It peaked at more than US$68,000 (£55,600) in November 2021, when the total market value of cryptocurrencies reached nearly US$3 trillion. However, in recent months, according to Statista, most major cryptocurrencies have declined by more than 70%, with bitcoin falling below US$18,000.
Meanwhile, extreme market conditions have also caused crypto lending platform Celsius to announce it had paused all withdrawals, swaps, and transfers between accounts. While the investors were without access to their money, the platform’s native token, CEL, dropped to 70% in value within an hour of the announcement, triggering another wave of panic across the crypto market. Similarly, two of the biggest US crypto firms, Coinbase and BlockFi, have recently announced they are laying off nearly 20% of their staff. Also, a dogecoin investor is suing Elon Musk for $258 billion in damages for his promotion of Dogecoin.
With this explosive set of events, it is safe to say that crypto may be facing its most important test yet. The question is, will it scale through?
The Role of Decentralized Oracles in a Volatile Crypto Market
As the crypto market continues to undergo extreme volatility and bearishness, the importance of reliable, tamper-proof, and robust decentralized oracle networks cannot be overemphasized as disparities in the pricing of various coins have recently surfaced.
Not too long ago, an alleged glitch or deliberate assault on the Dai-dollar-peg data given by the Coinbase oracle boosted the stablecoin’s price to about $1.30 – a 30% premium – leaving some Compound users under-collateralized. According to analytics firm Loanscan, lenders using the decentralized finance (DeFi) protocol Compound were liquidated for a staggering $103 million. This occurred due to what looks to be an oracle exploit on the Dai stablecoin.
Another example is the major gap between the reported price of the assets underlying Luna Classic and its synthetic assets on the DeFi platform Mirror Protocol, resulting in miscreants exploiting this monetary differential. LUNA collapsed because there were many discrepancies in the reporting of prices, which led to significant losses in investor capital.
Thus, if DeFi and blockchain-based solutions are to see mainstream adoption, there has to be an accurate and reliable way to supply real-world data to these systems. To succeed, DeFi needs to rely on accurate price feeds supplied by oracles that cannot be manipulated.
Therefore, since it has been established that ineffective reporting of price data on-chain has caused significant losses to investors worldwide, it is pertinent for DeFi platforms and the crypto market to begin using external collateral instead of native tokens as incentives for investors honest data reporting. QED is one decentralized oracle protocol with a robust economic model, connecting multiple blockchains, smart contract platforms, and off-chain data sources.
QED uses external collateral rather than native tokens as incentives for honest data reporting among oracles, allowing scenarios like the ones described above to be avoided entirely. The initiative aims to retain its incredible openness by disseminating data points via various digital entities. On a more technical level, QED outperforms its closest competitors in terms of pricing accuracy, finality, network resilience, and security.
Another oracle is Band Protocol, a cross-chain data oracle platform aggregating and connecting real-world data and APIs to smart contracts. The Band protocol is compatible with all smart contract platforms and blockchain development frameworks. In a trustless and decentralized manner, they do all the heavy lifting of pulling data from external sources, aggregating, and packaging them into a format that is easy to use and cryptographically verified across multiple blockchains.
As the crypto industry battles with extreme volatility! The need to use external collateral instead of native tokens as incentives for honest data reporting among decentralized oracles becomes urgent. The reliability of the data presented by a smart contract can make or break the level of trust on the client side. Therefore, data sent through the network must be curated and verified through majority voting, preventing a single failure point in the oracle system.
Also, a reputation and certification system for oracle performance must be introduced, and the security of hardware components must be ascertained to protect the integrity and confidentiality of data to ensure tamper-proof and private data transfers between oracles and smart contracts.